Making the Case for Value Pricing

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By Alexandra DeFelice

Are you really getting paid for what you do? 
This question set the stage for Ed Kless and Ron Baker's presentation at the AccountingWEB Live! conference in Dallas earlier this month, during which they made the argument that firms must make the move from charging by the hour to charging by value.
The debate between billable hours vs. value pricing has heated up in the accounting profession over the past few years, especially as technology continues to increase efficiency. Kless, director of partner development and recruitment for Sage North America and senior fellow at the VeraSage Institute, argued that the more efficient people become, the less money they earn because of their ability to do the same work - or more work - in less time.
"Not a single customer has purchased a single hour from you. They purchased the results of the hours," Kless said. "Sell what your customers buy. If they aren't buying hours, why are [hours] on your invoice? " 
The problem in billing by the hour is that clients don't really care, or at least they don't want to know about the time and pain involved, they just want the end result, according to Baker, cofounder of VeraSage Institute, whose "quest" is to bury the billable hour and replace it with pricing on purpose.
"We don't only focus on labor pains, we bill by them," Baker said of accountants. "The customer wants to see the baby, not how hard it was to [birth] it. Stop measuring the labor contractions and start thinking about the baby."
Baker shared a story of an expensive Napa Valley wine he wished to buy. He saw the value of the product and was willing to pay a premium for it, regardless of the "why" behind how good it was. The winery employees felt the need to justify the cost by explaining the detailed and time-consuming process they used to produce the wine. But at the end of the day, Baker didn't care about all of that. He just wanted to enjoy the end result.
"Trying to justify your costs after the work is done is a losing proposition," Kless said. "Go on the value quest. Talk to your clients about what they want and how much they're willing to pay for it."
Maximize the lifetime value of the profit your customer makes from your service. Then match the value to the customer to the price you charge. The more value you bring customers, the more you can charge. And what they value is to benefit from the knowledge your firm possesses.
Transitioning to value billing has to start with a conversation with your team about why you're making it happen. Then begin talking with a few clients to whom you believe you can bring additional value, keeping in mind that each client will value things differently.
Baker gave an example using the value of water. If he were doing his dishes, he would perceive water at its standard value. If he were stranded in the desert, it would be exponentially more valuable, yet if the water were flooding his basement, it would have a negative value.
"Money isn't created or destroyed," Kless said, quoting the famous line from the movie Wall Street. "(It's) just transferred from one perception to another."
If your clients perceive the value of your work, they'll be willing to pay the cost.
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About the author:
Alexandra DeFelice is senior manager of communication and program development for Moore Stephens North America, and a regional member of Moore Stephens International Limited, a network of more than 360 accounting and consulting firms with nearly 650 offices in 100 countries. Alexandra can be reached at [email protected].


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This quest has been around for decades. There is one Very Big Problem with Kless and Baker's argument, and it's revealed in their metaphor of dishwater vs. water in the desert.

Value may provide the floor price; but only in a monopoly market does it provide the upper price. If there were two vendors of water in the desert, you'd see the market price drop considerably.

And since there are considerably more than two accountant vendors for almost any job, you're not going to find a lot of clients who are thrilled with paying 2x or 3x the cost of what a competitor firm will charge.

In a competitive market, it's always good to discuss value; it will establish a floor price, and help the client appreciate the benefits. But it will never establish a ceiling, hence it's use is forever going to be somewhat limited.

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Interesting. I think the idea is to have them come in for water and then woo them with other things that they value and maybe don't even realize you have because they thought all you sold was water....-Alexandra

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Charles, Competition is not the only factor setting a price. Value, ultimately, determines all prices. Otherwise, how would you explain some restaurants charging far more than others? That is not a monopoly industry. Competition is a factor, but it's not the most important one. Customers don't just buy the cheapest priced produce/service--if they did, Procter & Gamble wouldn't have $1 billion brands in toilet paper!

CPA firms have pricing power. They aren't merely price takers, but rather they can be price searchers. The billable hour doesn't allow for this strategy. The billable hour only provides a self-imposed ceiling on firms, since there's only so many hours in any firm. This is a suboptimal business model.

Value Pricing is increasingly being used by companies around the world, and pricing has been elevated to the C-Suite. I'm on the faculty of the Professional Pricing Society (along with Ed Kless), with thousands of members. I've written six books on this topic, and have helped thousands of firms completely eliminate the billable hour and timesheets. It can, and is, being done.

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I'm a pricing novice but I have a comment about "the two water vendors in the desert driving prices down" example from Charles in the comment below. I don't buy it (pun intended).

Right now, water is one of the most available resources in the world. Any of us can turn on the tap and get it. But many of us pay a premium for the perception of "bottled water is better" at home, at restaurants, etc.

I'm also reminded of this old joke: if you put a single lawyer in a small town that doesnt' have lawyers, he'll be out of business in a year. If you put two lawyers in competing firms in that same small town, they'll both have thriving practices in a year.

Supply drives demand it would seem. Particularly well-packaged and well-marketed supply. Rational pricing be damned!

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I think the long-running debate on value pricing versus the billable hour suggests this is a really important practical problem that hasn't quite been solved. In my general experience in accounting and auditing, I'm generally inclined to agree with Mr. Green, although in my particular areas of unique expertise I'm fully convinced that value pricing leads to better outcomes for both client and professional.

Clients do indeed pay for value/service, not for a billable hour; just ask them. But it is also true that price is driven towards cost (and, so, a billable hour framework) in a competitive market. I think the solution to the problem inherent in the debate revolves around the notion of perceived value versus actual value. Let me explain. Clients, contrary to what we might wish, pay for perceived value; but that perceived value is a function of actual value and what I will call “noise”:


I think some people mistakenly call noise “brand value” when they confuse the results of short-term “marketing buzz” for value, and some people correctly call noise “hype” (i.e., the effects of puffery on perceived value).

Focusing for a moment on actual value, it is not so difficult to see that in an otherwise competitive national or regional market, professionals can effectively create “local monopolies” by carefully marketing and delivering unique price-quality-service bundles that differentiate them from their apparent competitors. This gives them quasi-monopoly pricing power and, properly exercised, results in better outcomes for both professional and client.

To me the more interesting problem are the conditions under which potential
clients can infer noise and, in so doing, accurately value and bid-price services. To see the issue here, consider a simple example often given where the regional audit firms provide audit services arguably equal in quality to Big 4 audit services. Indeed, in many cases most all the audit partners, managers, and even some of the audit staff in the regional firms came directly from the Big 4 and have every incentive to provide the same quality of audit services they provided with employed in the Big 4 firms. And yet, they must generally price their services well below what the Big 4 would charge; and far enough below that the “deep litigation pockets” aspect of audit pricing would seem not to hold.

So, it seems research needs to be done on how potential clients infer what I’m calling “noise” when evaluating professional service providers. If we can get clear answers from the research, then I think the debate can be resolved. My a priori belief is that the research will show that creating “local monopolies” is perhaps the only effective way to succeed with a value pricing strategy.


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Malcolm, The practical problems have been resolved. Price may be driven towards costs, but this is a tendency, not an iron law. It still leaves firms with the opportunity to be price searchers, not just price takers. What you call "noise" is an illustration of all value is subjective. There's no such thing as "actual value." This was resolved in economics by the Marginalist Revolution of 1871. Brand value is very important to us consumers, even in the purchase of toilet paper, otherwise P&G wouldn't have $1 billion dollar brands in that category. The Big 4 have brand value as well. My books explain the economics of this in great detail, if you're interested in the research. The debate isn't resolved because CPAs don't want to give up their business model of "we sell time," not because the economics of value hasn't been resolved.

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You can't put a price on a great article, one that's expectedly generating lots of dicsussion. I appreciate Ron Baker's leadership on this topic. Deltek sits squarely on the fence in the value-pricing debate; we don't advocate for one approach over another. But we realize that technology can be helpful in determining value, no matter how you choose to price. Our recent article with Boomer Consulting discusses some attributes you might look for in helpful practice-management technology, and ways you might use that technology if you're planning to engage in value pricing. (Let me know if you're interested; I'll point you to the article.) Happy holidays- and peace among the "valuers" versus the "hourlies." :)

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Drew, I appreciate the fact that you must sit on the fence as a rep for Deltek, but to say that technology can assist in determining value no matter how you price is a bit of a stretch (unless you are selling yield/revenue management software). I've read your article, and it's silent with respect to drivers of customer value. The only way to determine value is to look outside the organization at the customer, not internally with technology.

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Value Pricing is the only way to go. It forces the practice owner to focus on providing value for the client. Technology is great for your own efficiency, but usually not something the client gets a lot of benefit from that they can touch and feel. As technology and globalization continues to drive down costs, a focus on value will become only more important. The firms that don't adopt value pricing will be the ones left in the dust.

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